The following website, maintained by the Federal Reserve Bank of St. Louis, contains information on the...

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The following website, maintained by the Federal Reserve Bank of St. Louis, contains information on the share of GDP corresponding to investment (meaning the portion of output dedicated to investment, or investment rate) in the US, measured quarterly from 1950 to the present: https://fred.stlouisfed.org/series/A006RE1Q156NBEA One striking feature of this graph, is that there is a lot of variation in the investment rate over time, and notably, that the investment rate tends to decline during economic recessions (highlighted by the grey bars in the graph). [For example, look at the big drop in investment rate that occurred during the Great Recession (2008-2010)]. A. A key assumption in the Solow Model, is that the savings rate (which is also equal to the investment rate), is exogenous and constant over time. Does this match up with the evidence presented in the graph mentioned above? B. What are some factors that could explain why the savings/investment rate declines during economic recessions? The following website, maintained by the Federal Reserve Bank of St. Louis, contains information on the share of GDP corresponding to investment (meaning the portion of output dedicated to investment, or investment rate) in the US, measured quarterly from 1950 to the present: https://fred.stlouisfed.org/series/A006RE1Q156NBEA One striking feature of this graph, is that there is a lot of variation in the investment rate over time, and notably, that the investment rate tends to decline during economic recessions (highlighted by the grey bars in the graph). [For example, look at the big drop in investment rate that occurred during the Great Recession (2008-2010)]. A. A key assumption in the Solow Model, is that the savings rate (which is also equal to the investment rate), is exogenous and constant over time. Does this match up with the evidence presented in the graph mentioned above? B. What are some factors that could explain why the savings/investment rate declines during economic recessions?

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A The evidence presented in the graph of the investment rate in the US from 1950 to the present does ... View the full answer